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ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits

Finance director of Rho Co asks the accountant to avoid recognising a $5m termination benefit liability at the year end, though the plan was communicated to employees with no right of withdrawal, so that the bonus-linked profit target is met. What is the most appropriate response under ACCA's ethical principles?

The accountant should refuse. Because employees were informed and the offer cannot be withdrawn, IAS 19 requires the $5m liability to be recognised now. Omitting it to meet a bonus target would breach the fundamental principles of integrity and professional competence and due care, and note disclosure alone would not cure the misstatement.

  1. AComply, since the amount is a matter of management judgement
  2. BRefuse, as recognition is required and omitting it would breach integrity and professional competence and due careCorrect
  3. CComply but disclose the liability in the notes only
  4. DDefer the liability to next year and report it as a prior period adjustment

Explanation

Once the entity can no longer withdraw the offer, IAS 19 requires recognition, so there is no judgement allowing omission. Deliberately misstating to hit bonus targets breaches integrity and objectivity and professional competence and due care. Disclosure only or deferral to a later period still misstates the current year financial statements.

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